S. Korea Weighs Guarantees for Inter-Bank Loans

South Korea is considering providing state guarantees for inter-bank loans as part of efforts to stabilize financial markets and stave off their negative impact on the real economy, Yonhap News reported quoting officials Friday.

Earlier in the day, senior policymakers held a meeting and discussed measures to ease growing concerns in the market. They were Finance Minister Kang Man-soo, chief presidential economic secretary Bahk Byong-won and Financial Services Committee Chairman Jun Kwang-woo.

During the gathering, participants explored ways to guarantee inter-bank loans and transactions, a move that would follow similar actions taken by some advanced nations in the wake of the global financial meltdown.

"Working-level consultations are currently underway and comprehensive stabilization measures will be announced Sunday. They could include state loan guarantee," Kang told reporters in a press conference after the meeting. "Those measures will be preemptive, decisive and sufficient actions."

The move could foster a sense of crisis among market participants but the government is reviewing the option seriously as local banks are under heavy pressure from the currency shortage, officials said.

Earlier this week, Finance Minister Kang Man-soo raised the possibility of providing inter-bank loan guarantees. "South Korea will consider whether or not to take such an action after reviewing measures taken by Hong Kong, Japan and other Asian countries."

South Korea is struggling to unfreeze the tightening credit conditions sparked by the collapse of U.S. investment giant Lehman Brothers Holdings last month and the resulting financial turmoil that followed. Dollar shortage has pulled down the won and local stocks over the past few weeks.

The government recently provided a combined $15 billion for the won-dollar swap market and local banks in order to ease a dollar shortage in the financial sector.